European High Yield & Leveraged Loan Report: Q2 2019 | AFME

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European High Yield & Leveraged Loan Report: Q2 2019
02 Sep 2019
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Julio Suarez Director

The Report contains European leveraged finance market trends for the second quarter of 2019, which includes issuance and credit performance figures for the high yield and leveraged loan markets.  

Key highlights:

  • European leveraged finance issuance (leveraged loans and high yield bonds) increased to €59.9 billion in 2Q’19, a 31.6% increase from €45.5 billion in 1Q’19 but a 21.4% decrease from €76.2 billion in 2Q’18.
  • Primary high yield issuance totaled €29.0 billion on 69 deals in 2Q’19, a 69.5% increase from €17.1 billion on 39 deals in 1Q’19 and a 14.2% increase from €25.4 billion on 61 deals in 2Q’18.

    The proportion of USD-denominated issuance decreased to 28.4% of all issuance in 2Q’19, down from 34.8% in 1Q’19 but up from 21.5% in 2Q’18.

    The leading use of proceeds for high yield bonds issuance in 2Q’19 were general corporate purposes with €14.9 billion, which was up 31.4% from €11.4 billion in 1Q’19 and up 25.9% from €11.9 billion in 2Q’18.
  • Leveraged loan issuance, including first lien, second lien, and mezzanine financing, increased to €30.9 billion on 58 deals in the second quarter of 2019, an 8.8% increase in volume from €28.4 billion on 55 deals in 1Q’19 but a 39.2% decrease from €50.9 billion on 96 deals in 2Q’18.

    Over three quarters (77.8%) of deals financed in the second quarter of 2019 were issued for refinancing and/or repayment of debt, up from 40.0% in 1Q’19 and up from 47.3% in 2Q’18.

    Pricing spreads for institutional loans widened by 6 basis points (bps) q-o-q and by 66 bps y-o-y while spreads for pro rata loans tightened by 11 bps q-o-q but widened by 20 bps y-o-y.
  • Credit quality: As of June 2019, S&P reported the trailing 12-month speculative-grade default rate at 2.3%, an increase from 2.0% in March 2019 and an increase from 1.8% in June 2018.

    Three bond-related defaults were reported in the second quarter of 2019, all in developed market. Two firms defaulted due to missed interest payment and one due to distressed exchange.

    According to Standard and Poor’s, in 2Q’19 upgrades exceeded downgrades in developed market Europe (27 upgrades to 25 downgrades), a much better ratio than 13 upgrades to 26 downgrades in 1Q’19 but slightly worse than 31 upgrades to 26 downgrades in 2Q’18.